Calavo Reconfigures Board in Market Slowdown

Calavo Growers Inc. has reconfigured its board in the past six months as one new member was added while three members resigned.Egidio “Gene” Carbone Jr. and Dorcas Thille announced in September they would leave the board of the Santa Paula avocado and fresh food grower and distributor effective Jan. 3. Late last month, former Chief Executive Lecil Cole notified the board he would step down on March 1.

Cole had served on the Calavo board since 1982 and had been the chief executive of the company since 1999 until retiring early last year.

Joining the board in September was Farha Aslam, the founder and managing partner of Crescent House Capital, a New York consulting firm focused on the agriculture, energy and food processing industries.

“Her extensive experience in the capital markets and the food industry is ideally aligned with our goals to accelerate future growth and profitability,” Calavo Chairman J. Link Leavens said in a statement.

In a conference call with analysts from December to discuss fourth-quarter earnings, Chief Executive Jim Gibson made passing reference to the board changes when detailing the accomplishments of the past year.

“We initiated programs to consolidate our organizational structure that will deliver improved operational efficiency,” Gibson said during the call. “We introduced new products and innovative solutions to our customers. We expanded our independent board representation and redoubled our commitment to our ESG (environmental, social and governance) initiatives.” On Dec. 21, the company reported adjusted net income of $6 million (35 cents a share) for the quarter ending Oct. 31, compared with net income of $7.9 million (30 cents) in the same period a year earlier. Revenue dropped 20 percent to $234 million.The company attributed the lower revenue to a decrease in avocado prices and lower sales volumes in the Renaissance Food Group (RFG) and foods segments “as a result of the closure of (Renaissance’s) Midwest co-packing partner in April 2020 and the prolonged COVID-19 pandemic,” the company said in a release.“When excluding the impact of this closure, sales in our RFG segment rose 3 percent year-over-year, overcoming the impact from the pandemic,” Gibson said in a statement.Renaissance Food Group is a division of Calavo.‘Weak’ guidanceOver the past 52 weeks, the value of Calavo shares has increased by 3.5 percent, through Feb. 8. On Feb, 10 shares closed at $77.68.

First-quarter earnings will be released in early March. According to Thomson Financial Network, analysts on average expect earnings of 19 cents on revenue of $220 million.Mitch Pinheiro, an analyst with Sturdivant & Co. who tracks food, beverage and consumer goods, pegged the target price at $85 a share and rated the stock as an outperform in a research note released after the fourth-quarter results were announced.

The renewed COVID-19 restrictions put in place in December – but since rescinded in California – will create a difficult start to the new year in the foodservice markets, Pinheiro wrote in the note. Also, pricing pressures are being created by a strong avocado supply from Mexico and COVID-demand issues, he added.

“The bottom line is (Calavo) will not be able to return to a normal earnings power level until the COVID lockdowns diminish and avocado supply and demand reach equilibrium, probably mid-2021 at the earliest,” Pinheiro said in the note.

During the conference call, Chief Financial Officer Kevin Manion said that the company expects avocado volume to grow this year, which in turn will keep pricing and margins lower than last year.

“Because we do not have a view as to when foodservice resumes, which is an important outlet for non-retail sizes and overall margin support, we expect revenues (in the first quarter of this year) to be in the range of $215 million to $225 million, which is a year-over-year decrease of 20 percent at the midpoint … from the first quarter of 2020,” Manion said.

Pinheiro called the first quarter guidance “weak,” in his research note.

But he did write that the 3 percent increase in revenue at the Renaissance Food Group segment was “an encouraging sign amid the COVID challenges to the grocery and industrial channels.“We continue to believe we will see RFG gaining share in the fresh prepared foods segment as a result of future COVID-related changes to retail grocery,” he said in the note. “Self-serve salad and olive bars are likely to convert permanently to prepackaged forms. In-house preparation of deli-salads, sandwiches, guacamole and other freshly prepared foods are likely to be outsourced to an RFG as food safety, employee hygiene, store sanitation and customer perceptions are taken into consideration.”